Japanese Economic and Political Issues (1890s–1940)

Foundations of Industrialization and Economic Policy

• Drivers of Policy: Domestic and foreign strategies were primarily dictated by economic necessity and the desire to escape cycles of growth and contraction. Systemic failures to stabilize these cycles led to the expansion of monopolies and increased political pressure for systemic change.

• Modernization Goals: Following the dissolution of the feudal system, a deliberate effort was made to industrialize for two purposes:

  • Wealth Generation: Enriching the population through modern economic practices.

  • National Security: Protecting Japanese sovereignty against Western imperial expansion from the USA and Europe. Strategic independence was tied to the ability to export manufactured goods to pay for essential imports, a lesson learned from the economic subjugation of China by foreign powers.

• Industrial Growth Markers ($1895$–$1915$):

  • Total Industrial Output: Increased by $250\%$.

  • Mineral Processing: Increased by as much as $700\%$ by the end of the nineteenth century.

  • The Textile Sector: Led the industrialization effort. Silk output quadrupled between the $1890s$ and $1913$. By the start of World War I, $75\%$ of silk thread was machine-reeled, and $75\%$ of total output was exported annually. Cotton thread followed similar trajectories, with $50\%$ of production exported primarily to China and Korea.

  • Infrastructure and Natural Resources: By $1900$, the Ashio copper mine and its refinery attained world-leading production status. The railway network reached $5400\,km$ ($3400\,miles$) by $1900$, significantly lowering the cost and time required for goods transportation. Coal mining fueled these industries and the merchant fleet serving Pacific ports.

The Rise and Influence of the Zaibatsu

• Definition and Scope: Zaibatsu were expansive, family-owned monopolies that emerged in the nineteenth century. These corporations possessed significant capital and technical expertise, allowing for rapid industrial integration across multiple sectors.

  • Example (Mitsui): Controlled interests in textiles, paper, mining, and banking.

  • Market Dominance: By $1918$, the eight largest zaibatsu accounted for $20\%$ of all Japanese manufacturing, trade, and mining.

• Political Lobbying and Diet Control: Zaibatsu consolidated power during economic crises by acquiring failing smaller competitors and banks. They exerted significant influence over the Diet to maintain favorable economic policies:

  • Lower House Connectivity: Approximately $8\%$ of members held positions within zaibatsu, while another $18$ members had close relatives employed there, resulting in a total connection rate of $12\%$.

  • House of Peers Connectivity: Approximately $22\%$ of members held corporate positions, with a total of $28\%$ connected through direct employment or family ties.

  • Specific Corporate Influence: Mitsubishi had the highest number of associates on its payroll with $66$ members, followed by Mitsui with $48$ members.

Interwar Economic Fluctuations and Social Stress

• Urban Migration and Remittances: Economic expansion drew landless rural peasants, particularly women, to cities for factory work. The wages earned helped rural families increase food intake and purchase manufactured goods, further stimulating the economy.

• Impact of World War I ($1914$–$1918$): The focus of Western powers on war production created a vacuum in global markets. Japanese cotton textile exports rose by $185\%$, leading to labor shortages and higher wages.

• Post-War Contraction ($1920$): Demand plummeted as Western nations resumed production. Massive unemployment ensued, and rural remittances ceased. Landowners responded by cutting farm labor, devastating landless farmers.

• Specific Price Deflation ($1925$–$1928$):

  • Rice Index: Using $1911$–$1913$ as a base of $100$, rice fell from $114$ in $1925$ to $87$ by $1928$.

  • General Farm Price Index: Decreased from $118$ in $1925$ to $93$ in $1928$.

  • Agrarian Poverty: Approximately $40\%$ of the farming population earned less than $60\,yen$ from their rice crops after paying rent, placing them below the lowest urban income brackets.

• Reconstruction and the $1927$ Bank Failure: The $1923$ Tokyo earthquake necessitated massive rebuilding. While low-interest loans initially created jobs and prosperity, they led to a banking crisis in $1927$ when borrowers could not repay. This caused a severe contraction, resulting in $7.5\%$ unemployment for skilled labor and over $40\%$ for unskilled labor.

The Great Depression and the Shift Toward Militarism

• Global Impact and Trade Barriers: Following the $1929$ crash, international trade barriers isolated Japan from its largest partner, the USA.

  • Silk Industry Collapse: In New York, silk fell from $\$5.25$ per pound in September $1929$ to $\$2.50$ just thirteen months later. Total silk export value to the USA dropped to less than $25\%$ of its pre-depression level by $1934$.

  • Domestic Indicators ($1929$–$1931$): Gross National Product (GNP) dropped by $20\%$, and the Tokyo Stock Market lost half its value. Half of all small-to-medium businesses shuttered forever. Export volume fell by over $40\%$, and agricultural prices declined by $45\%$.

• Political Unrest and Oligopoly: Poverty triggered strikes and riots, increasing the popularity of radical groups demanding social restructuring. Simultaneously, the number of banks dropped from $1300$ to $700$, allowing the "Big Five" (Mitsui, Mitsubishi, Sumitomo, Daiichi, and Yasuda) to strengthen their oligopolistic grip. Public resentment peaked in $1931$ when zaibatsu managers were labeled "traitors" for currency speculation (buying US dollars) ahead of a gold export ban.

• Transition to a War Economy:

  • Planned Migration: The government considered sending the unemployed to Manchuria to relieve domestic pressure, though this did not occur in scale until after $1936$.

  • The February $26$ Incident ($1936$): The assassination of the finance minister led to the installation of a military appointee and a pivot from fiscal restraint to heavy military spending.

  • Twelve-Year Plan ($1936$): Aimed to modernize the armed forces, military spending spiked from roughly $0.5$ billion yen in $1929$ to roughly $12$ billion yen by $1940$.

  • Resource Necessity: A lack of natural resources and declining consumer exports forced the state to seek territory to provide the raw materials required for an expanding war economy, creating a cycle of expansion and conflict.

Questions & Discussion

• Driving Forces of Policy: To what extent did economics drive Japan's foreign policy? Economics served as the primary motivation for both initial industrialization and later territorial expansion to secure resources.

• Regional Economic Importance: What was the importance of China and Korea for Japan's economy? They served as essential markets for manufactured exports, particularly cotton textiles.

• Zaibatsu Political Control: To what extent did the zaibatsu work to control Japan's Diet? They secured representation for roughly $12\%$ of the lower house and $28\%$ of the upper house through direct employment and family ties to ensure favorable legislation.

• Agrarian Panic: What was the effect of economic decline in Japan on agricultural workers? It caused catastrophic income drops; for example, landless peasants renting land saw annual incomes fall from $987\,yen$ in $1926$ to $449\,yen$ by $1931$.

• Consequences of the Great Depression: What was the most significant political result of the Great Depression for Japan? The failure of the democratic system to address poverty led to radicalization, the collapse of governments, and the eventual military takeover of the economy.